Instead of merely relying on assumptions about supply and demand, the technical analyst researches the history and performance of a certain stock, including the way that prices fluctuate under different circumstances. Over time, this performance will form patterns that analysts can use to tell whether an increase or decrease in price is to be expected from a certain stock. It’s not quite as guaranteed as being able to see into the future, but it makes it possible to offer up much more educated predictions..
It’s important to not only be able to spot patterns like the symmetrical triangle, but also to know what their presence means for the value of your stock and the next action that you should take. This pattern, which is also sometimes referred to as the coil, is a continuation pattern, which means that although it might exhibit some bumps and spikes along the way, it will mostly continue the trend that preceded it, whether increasing or decreasing. It is also likely, though rare, that it can be a reversal pattern in some cases..
Most experienced technical analysts suggest that only about twenty-five percent of symmetrical triangles are reversals and the rest are continuation patterns. Because they often have misleading breakouts, the reversal patterns can be especially difficult to spot and analyze. This means that it’s very important for investors not to try to guess the direction of the breakout, but instead practice patience and wait for it to actually unfold. It’s important that extensive breakout analysis is conducted to look for gaps in the breakout, fast moving price changes, and that volume is always investigated before confirmation is given.